State of Innovation

Patents and Innovation Economics

Stock Options – Accounting or Controlling

            Intellectual capital, financial capital and human capital were the three pillars of the incredible innovation of the 90s.  Human capital in the form of scientists, engineers, management, etc. was typically lured into a risky start-up company with stock options.  According to the online accounting dictionary an option is a right given the holder to buy a specified number of shares of stock at a certain price by a particular date.  Stock options were the prize if the venture worked out for talented individuals to forego better paying, less stressful positions with established organizations that often had better benefits.  The strike price of the stock option was always set at or below the fair market value of the stock at the time option was issued, meaning the option had no inherent value.  The promise was that if the venture succeeded the employees would be able to cash in their stock options and receive a large reward.  If the venture failed, these stock options would end up being worthless.  Some accountants believed that stock options should have an associated expense at the time of the option grant.  The Financial Standards Accounting Board (FASB) implemented a rule requiring expensing of options in December 2005.  Read more »

July 5, 2009 Posted by dbhalling | -Economics, -Legal, Innovation | , , , , | 1 Comment